Final answer:
The correct capitalization is option 1, which is 'Captain Juan set sail with his crew in the Atlantic Ocean', with proper nouns and the first word of the sentence capitalized.
Step-by-step explanation:
The correct capitalization of the sentence is: Captain Juan set sail with his crew in the Atlantic Ocean. This corresponds to option 1.
In this sentence, 'Captain Juan' is correctly capitalized as it is a proper noun, and the term 'Atlantic Ocean' is also correctly capitalized as it refers to a specific ocean, which is a proper noun.
Common rules of capitalization state that proper nouns, like names of people and places, should be capitalized. Articles, prepositions, and conjunctions are generally not capitalized in the middle of a sentence unless they are part of a title.