Cross posted Remodeling

I'm planning to renovate the bump out on my 1916 house to make it a usable breakfast nook. I will be replacing 4 windows, and adding an exterior door to a new deck. The hang-up is that outside siding is 1"x8" redwood shiplap, nailed directly to the studs - no sheathing or tarpaper. It is generally in good shape, except where the crappy windows leaked. My main question is: how should I install and flash the door and windows to avoid leaks? Everything I've read assumes there is sheathing under the siding (so window is installed on sheathing, flashed, then siding and trim put on). My two options seem to be:

1)Install nailing flange directly to siding, caulk the hell out of it, and put trim boards over the flange and caulk all seams.

2) Mount windows directly to studs, header, and sill (after wrapping all those in adhesive flashing), flash over flange, and install siding and trim, including a drip cap that goes under the siding but over the top of the window.

I'm leaning toward #2, because I am suspicious that even a well caulked surface mounting won't keep water out. But does anyone have any thoughts or suggestions to make this more waterproof?