Firstly, the specifications for HTML 4.01 and XHTML 1.1 specify the minimal content model for the 'option' element to be CDATA - meaning it can contain nothing but text (no child elements).
Most browsers respect this and don't bother rendering any elements inside 'option'.
Secondly, it seems you're using the 'h1' element to create a visual distinction, as opposed to its correct use as a header to create a semantic content hierarchy. I'd suggest you use something along the lines of:
<option value="1" class="big">one</option>
Styling 'big' as required.