What is correct in this situation?

Answer 1 (“I may turn unimpeded”) is correct because your direction has a green traffic light, so you are allowed to enter the junction and complete your left turn.

The key rule is: when turning left, you normally must yield to oncoming traffic going straight or turning right. But that only applies if the oncoming traffic is also allowed to drive at the same time. In this situation, the oncoming vehicle is facing a red light, so it has to stop and has no right of way. That’s why you don’t have to let it pass first.

You also don’t need to wait in the middle of the junction here. Waiting in the center is a “plan B” only when oncoming traffic is flowing and you can’t turn immediately; with oncoming traffic stopped by a red light, you can turn directly as long as the way is clear (including pedestrians/cyclists on the crossing you are turning into).