I'm not sure I understand what you mean by

Note that option 2 cannot be nested under a header like "Args"

But actually Option 2 is the standard. It provides everything you need to document your functions/methods etc and, what most importantly, it's syntax is the part of the Sphinx documenting tool and it will be rendered correctly and similarly by any compliant parser. For example, consider how we can document this big class method with Option 2 (this is a copy'n'paste from a rst file but you can easily adapt it to paste in a docstring):

.. py:method:: create(**fields)
    :module: redmine.managers.ResourceManager
    :noindex:

    Creates new issue resource with given fields and saves it to the Redmine.

    :param project_id: (required). Id or identifier of issue's project.
    :type project_id: integer or string
    :param string subject: (required). Issue subject.
    :param integer tracker_id: (optional). Issue tracker id.
    :param string description: (optional). Issue description.
    :param integer status_id: (optional). Issue status id.
    :param integer priority_id: (optional). Issue priority id.
    :param integer category_id: (optional). Issue category id.
    :param integer fixed_version_id: (optional). Issue version id.
    :param boolean is_private: (optional). Whether issue is private.
    :param integer assigned_to_id: (optional). Issue will be assigned to this user id.
    :param watcher_user_ids: (optional). User ids who will be watching this issue.
    :type watcher_user_ids: list or tuple
    :param integer parent_issue_id: (optional). Parent issue id.
    :param start_date: (optional). Issue start date.
    :type start_date: string or date object
    :param due_date: (optional). Issue end date.
    :type due_date: string or date object
    :param integer estimated_hours: (optional). Issue estimated hours.
    :param integer done_ratio: (optional). Issue done ratio.
    :param list custom_fields: (optional). Custom fields in the form of [{'id': 1, 'value': 'foo'}].
    :param uploads:
      .. raw:: html

          (optional). Uploads in the form of [{'': ''}, ...], accepted keys are:

      - path (required). Absolute path to the file that should be uploaded.
      - filename (optional). Name of the file after upload.
      - description (optional). Description of the file.
      - content_type (optional). Content type of the file.

    :type uploads: list or tuple
    :return: Issue resource object

Which will be rendered as:

I hope you can agree that it produces very similar and readable results in both raw and rendered form.