You have pretty much nailed it except that these options are picked up even if you start JVM in-process via a library call.
The fact that _JAVA_OPTIONS is not documented suggests that it is not recommended to use this variable, and I've actually seen people abuse it by setting it in their ~/.bashrc. However, if you want to get to the bottom of this problem, you can check the source of Oracle HotSpot VM (e.g. in OpenJDK7).
You should also remember that there is no guarantee other VMs have or will continue to have support for undocumented variables.
UPDATE 2015-08-04: To save five minutes for folks coming from search engines, _JAVA_OPTIONS trumps command-line arguments, which in turn trump JAVA_TOOL_OPTIONS.
You have pretty much nailed it except that these options are picked up even if you start JVM in-process via a library call.
The fact that _JAVA_OPTIONS is not documented suggests that it is not recommended to use this variable, and I've actually seen people abuse it by setting it in their ~/.bashrc. However, if you want to get to the bottom of this problem, you can check the source of Oracle HotSpot VM (e.g. in OpenJDK7).
You should also remember that there is no guarantee other VMs have or will continue to have support for undocumented variables.
UPDATE 2015-08-04: To save five minutes for folks coming from search engines, _JAVA_OPTIONS trumps command-line arguments, which in turn trump JAVA_TOOL_OPTIONS.
There is one more difference: _JAVA_OPTIONS is Oracle specific. IBM JVM is using IBM_JAVA_OPTIONS instead. This was probably done to be able to define machine-specific options without collisions. JAVA_TOOL_OPTIONS is recognized by all VMs.
JAVA_TOOL_OPTIONS is read by some JDK tools, but has limited applicability.
JAVA_OPTS is a convention used by Apache Tomcat and some other apps, but is not
read directly by any JDK tools published by Sun/Oracle, AFAIK.
From: https://forums.oracle.com/forums/thread.jspa?messageID=6438415
JAVA_OPTS is not an environment variable that the java executable will recognize on it's own. Instead, various scripts which wrap the start up of java will often use an environment variable named JAVA_OPTS to configure the java executable (for example, the tomcat startup script does this).
see "what is" doc and "tool options" doc
Basically, the JAVA_TOOL_OPTIONS is intended for use by development tools, monitoring tools and the like whereas JAVA_OPTS is used for running 'general' Java programs, I think people tend to mix and match somewhat (from what Google has shown me example wise).