Water is called the universal solvent because it is capable of dissolving more substances than any other liquid. Water can dissolve more substances than any other liquid because it is dipolar. Hence, Option 1 is correct.
Water molecules have a polar arrangement of oxygen and hydrogen atoms — one side (hydrogen) has a positive electrical charge and the other side (oxygen) had a negative charge.
This allows the water molecule to become attracted to many other different types of molecules.
Water can become so heavily attracted to a different compound, like salt (NaCl), that it can disrupt the attractive forces that hold the sodium and chloride in the salt compound together and, thus, dissolve it.
Because of its polarity, water can form electrostatic interactions (charge-based attractions) with other polar molecules and ions.