What should I do when a paper is published similar to my PhD thesis without citation?

Well, if you did not publish, and your thesis is not available, you really can't complain that somebody else's similar independently performed work is not novel - they had no reasonable way of knowing about your work.

Really, the only way to approach it is the first way. And learn that undocumented work buried in a drawer somewhere does not exist as far as the rest of humanity is concerned. Going forward, document and publish (as appropriate) your work (document for internal business use, publish for the outside world).

The editor is not the person to talk to here, but rather the authors of the paper:

"I was reading your paper and wanted to share that I found something similar to you in my unpublished thesis from 2014, thought this might be of interest to you: (link to or attachment containing thesis)"

No accusations (they've done nothing wrong), nothing combative like contacting an editor (which would imply they did something wrong). There is nothing they need to change with their original paper, but if they do future work to follow up they can now consider citing your work.

I would suggest something intermediate between your two proposals. There is no reason not to contact the editor and point to your thesis. But don't make a claim that the new work isn't "novel" since it truly is if done independently as seems to be the case.

The one thing you might possibly get is a note, pointing to your thesis, hence to you, that the same ground was covered in an unpublished dissertation. That might happen or not,

But, if you are also still interested in the topic and want to continue to extend it, you can contact the authors also, both congratulating them and pointing to your earlier work. That, along with a suggestion of collaboration in the future.

Independent work is very common. It is especially common in popular research areas. Everyone has access to the same background and many people are thinking along the same lines.

I'll also note that Newton and Leibniz had the same sort of issue, with Newton's early work left "in a drawer".