WH/40k - The age-old instant death and multiwound models question
6th edition

When rolling with a weapon with the instant death rule, the wound itself delivers instant death.  The rulebook advises:


  Remember to use different coloured dice or otherwise distinguish
  between the Wounds that have different special rules attached to them
  (like those inflicting Instant Death....)  (p. 25)


In short, since the die itself is the vehicle for Instant Death, you would be able to (in order to maximize your damage), apply your Instant Death wound first (assuming compliance with normal wound allocation rules), and allow all additional wounds to be distributed to other enemies.


  If there is more than one eligible candidate, the player controlling the
  models being attacked chooses which model it is allocated to. (p. 25)


7th edition

Follow the above rules, except when dealing with Gargantuan creatures:


  UNSTOPPABLE
  
  Any attack that normally inflicts Instant Death or says that the
  target model is removed from play inflicts D3 Wounds on a Gargantuan
  Creature or Flying Gargantuan Creature instead


Other notes:

Instant Death effect is voided by the Eternal Warrior special rule; when this occurs, only the -1 wound applies, but not the "reduce to 0 wounds and remove from play".

In short, you can choose your path 'a', which is well within your rights and is supported by both rulebook editions.