disk utility not showing erase option

To erase the startup drive, you have to be booted into Recovery Mode and use Disk Utility there.

Also, in Disk Utility you have to do View > Show all Devices. Then erase the top level drive you want to erase. Reformat it as APFS. If you are gifting the Mac it would be a kind gesture to go ahead and reinstall macOS while you are at it.

Here is an Apple article for things you should do to a Mac that is being sold (or gifted)...many of the steps should be done before erasing the Mac:

What to do before you sell, give away, or trade in your Mac - Apple Support