2 days road trip Oct 8-9 between Granada and Seville - itinerary?

Option #1 seems to offer more time in Cordoba without cutting into the time in Seville, which is the largest city with by far the most to see.

Now that the AVE is running all the way to Granada, the only part of your trip that will be faster by car is the section covering the white villages. You can compare the train time (renfe.com--choose Welcome at the top for the English version of the website) to the estimated driving time (ViaMichelin.com). VM's driving times do not include any stops, getting lost, looking for parking, or walking between your parking place and where you actually want to be.

The white villages are attractive, but most don't have a lot to see. The larger Ronda aside (set on a gorge), most can be covered well in 1 or 2 hours, excluding the sticky parking issues, and I would not take time away from the major stops in order to go to a lot of them.

Malaga is an attractive, pleasant, city, but it isn't remotely comparable to Seville, Cordoba or Granada, so be careful about where you steal the time if you go to Malaga. On a trip of this length, I think it's skippable unless you are a big Picasso fan.

If your trip is city heavy, I would opt to see more of the countryside, so I would drop Cordoba. Cordoba has much to see, so only a couple of hours there isn’t enough.

Nerja is nothing special, just a large, sprawling resort. October may not be beach weather.

Google Map driving times are optimistic. Getting in and out of Cordoba and trying to find somewhere to park will take longer than you think.

Here is some information about the Pueblos Blancos which may be useful in planning your route
https://slowtravelitalyspain.blogspot.com/search?updated-max=2018-10-19T13:30:00-07:00&max-results=11&m=1

We found driving in Spain out in the countryside relaxing, but I would avoid having to go into cities...

However if you also want to see the sea I think it could be very stressful to try and fit everything in. You could stay a night in Nerja instead and visit Frigiliana which is apparently a very pretty white town nearby (not been there yet but want to)

You don't say where you are starting from to get to Granada, but it would be easiest to go to Granada through Cordoba with a stop in C first, then rent the car in Granada to do the hill towns and end in Sevilla. No backtracking.

We did a version of Option 1 last year except we started in Cordoba - went to Ronda and stayed two nights with one day trip to Zahara and Arcos de la Frontera and on the third day we went to Granada... We enjoyed it very much. Driving those roads was fine.

There is certainly enough to see and do in Cordoba for a full day. There's an underground parking lot at the Cordoba bus/train station. From there, it's a short taxi ride to the historic center, or a leisurely walk, probably buses too. OTOH it's faster to take the train from Sevilla than to drive. Also, going by car from Arcos to Cordoba to Sevilla means backtracking to Sevilla.

If you want to spend the 2 days in the pueblos blancos, Ronda or Grazalema or Ubrique is a better place to stay. If you only want the first day for them, then Arcos is a good choice. Use as much time as you need for Arcos and then drop the car in Sevilla and spend the rest of the day sightseeing there.

It would help to know where you are going after Sevilla. If it's Madrid, you could spend the day in Cordoba on the way there by train.

You have all been so helpful. Here is the revised plan for Andulusia based on what you have advised. (Adding more of the bigger plan as you asked:)
Sunday October 6th = I fly into Granada from Barcelona at 6:40pm. Bus if time (taxi if not) to airbnb near Alhambra,
then go to Flamenco dancing show by the gypsy dancers in the caves at Sacromonte at 9:30pm. (ticket bought)
Monday October 7th = Alhambra most of day (ticket bought) then Hammam bathes and massage at night (ticket bought.)
Tuesday October 8th = Rent car, and do Pueblos Blancos - stay in Arcos (or should I stay in Rhonda or Zahara?)
Wedneday October 9th = More exploring the countryside, then to Seville (drop off car)
Thursady October 10th = The Alcazar, exploring and Museo de Baile Flamenco with a dance show there at night (ticket bought)
Friday October 11th = The cathedral, Museo de Bellas Artes and Basicla de la Macarena - with a tapas crawl in Triana
Saturday October 12th = Train to Cordoba (see Mosque, ticket NOT bought yet) then train to Madrid.
NOTE this is a big Spanish Holiday so I don't know if this will work in terms of train schedule because I cant book until 62 days ahead, and in terms of open hours.

I like the last plan. Arcos is a lovely place to stay. As for opening hours on 12 Oct: for tourist sights, it shouldn't have any impact. Same for train schedules, they'll be suitable. It does mean that you'll have to book train tickets when sales open.