Imo option 3 is basically what he did - keeping $700 means he basically took $35/hour as a babysitting fee. Not sure what’s standard for babysitting rates (child free for life), but I sure as shit wouldn’t take responsibility for a child for that much lol. The amount aside, rather than theft I see the situation as him inflating the value of the service he was providing - still a shitty thing to do in other circumstances, but one we collectively accept as not illegal theft when it’s by brand names and “luxury” stuff.
In other circumstances I’d fully agree with your point that the kid’s in a morally ambiguous situation with money he knows was stolen scammed from his parents, but from both the kids perspectives at the time thinking anon really was gay, he was in a vulnerable position with a very real chance of being cut off by his parents and needing to support himself. That removes any ambiguity imo, even ignoring the fact that his parents are bigots who more than deserved what they got