What is the right course of action?

You chose answer 1 (“I move first”), and that’s correct.

The key rule here is priority at an intersection without any priority signs or traffic lights: “right before left” applies. That means a vehicle coming from the right would normally have priority. But in this situation, the yellow car is coming from the side street on your right and wants to turn left into your road. When turning left, you must yield to oncoming traffic on the road you’re entering or crossing. Since you are driving straight/continuing on the main carriageway, you have priority over a vehicle that is turning left across your path.

Rule of thumb for similar questions: First check if there are priority signs/lights. If not, use right-before-left. Then apply turning rules: left-turners yield to opposing traffic, and anyone crossing another vehicle’s path must wait.