What do you do when you see this traffic sign?

Your answer is correct. This traffic sign is a warning for an upcoming intersection with cross traffic from all sides. According to German traffic rules, when you see this sign, you should reduce your speed and be prepared to brake if necessary. This helps you to approach the intersection cautiously and be able to react to any vehicles coming from any direction.

The third option, "Observe the traffic coming from the right only," is not sufficient because this sign indicates an uncontrolled intersection where traffic can come from multiple directions, not just from the right. Therefore, it is important to be attentive to all directions before proceeding.

In short, slowing down and being ready to stop ensures safety at this potentially dangerous crossing.