What is the right course of action here?

In this situation, you are on a priority road (indicated by the yellow diamond sign), so you have the right of way.

The red car is coming from a side street with a yield sign (triangle facing downward), which means it must wait and give way to traffic on the priority road.

Both you (going straight) and the yellow car (turning right from the priority road) have priority over the red car, because the red car must yield to traffic on the priority road.

Therefore, you and the yellow car may proceed ahead of the red car.

The key rule here is that vehicles on the priority (main) road have the right of way, and vehicles entering from a secondary road must yield. This explains why options 1 and 2 are correct and why option 3 (you proceeding ahead of the yellow car) is not correct, as the yellow car is also on the priority road and has the right to turn right without yielding.