So I hardly ever post but this is so apt for our situation I wanted to add my perspective- Number 1 is very close to what my DH does, except he works Friday from home and has less holiday.
The distance isn't ideal, but it works for us to not see each other 3, sometimes 4 nights a week - we make sure we have quality time in the evening as much as we can and we talk and message a lot.
At his job before he regularly missed bedtime and maybe only saw DD for 10 minutes in the morning. He now makes sure he Facetimes at least once a day when he's away- usually around bedtime (he often reads bedtime stories) and often in the morning as well. He also makes sure they spend some quality time alone together at the weekends, evenig it's just a trip to the park.
It may not work for everyone, but it works for us. With younger children it's really mostly about the weekends for parents with a longer commute.
For us, it has had a slight financial benefit but the money wasn't a deciding factor - my husband is much happier in his job than he ever was before.
One caveat is making sure that your husband is either happy to do housework and shopping etc during the week, or get a cleaner and do online shopping as the weekends need to be kept for precious family time - weirdly we spend a lot more time together as a family than we did before as we make sure we do stuff like go on day trips as often as possible whereas before we would easily have lost half a day trawling round a garden centre and catching up on housework - now I am disciplined to make sure this is all done during the week - like the OPs DH I work from home, Self employed so I can be flexible over my working hours.
This is just my perspective but for us it works as we have made it work, my DD and DH are very close and when they spend quality time together it's very special and memorable - we feel confident she'll remember the good times when she's older and not focus on the fact he wasn't there overnight etc.
One caveat is that we don't tend to socialise separately much so this does work for us - I tend to see my Mum friends during the daytime during the week and he goes out on his bike with friends on a Sunday Morning when DD is at church with my Mum so he wouldn't see her anyway. Very occasionally one of us has a night out without the other, but in that situation we always make sure the other two nights are together and plan sometime special such as a sit at the table meal or date night etc for at least one.
Despite the negativity on this thread it can work, but it's a decision you HAVE to make with your DH fully on board as it only works if both partners are willing to make it work.