If you created a WAP WCSF solution from scratch this option will be available to your all right. However if you converted your Web Site WCSF solution to WAP WCSF solution or upgraded from the previous version of WCSF this option may not appear when you are trying to add a new business module to your solution.
Visibility of the "Create as sub-Web Application Project" checkbox depends on one single property of a solution file and if you don't see the checkbox open the .sln file with any text editor and check out that it contains the follwoing content:
GlobalSection(ExtensibilityGlobals) = postSolution
IsWCSFSolutionWAP = True
Usually this section is located in the bottom of a .sln file and the red line is the key to solving the problem. If you don't see the line in your solution file simply add it and reload the solution in Visual Studio. Problem solved.