What is the right course of action?

Your answer is fully correct.

In this situation, the stop sign means you must come to a complete stop at the stop line. This is indicated by option 1: waiting at the stop line.

Additionally, there is a cyclist approaching from the left side, and according to German traffic rules, you have to give way to the cyclist before making your turn. This is covered by option 2: allowing the cyclist to pass through first.

Option 3 is incorrect because you are not allowed to make the turn in front of the cyclist, which could lead to a collision or create a dangerous situation.

The rule here is that at a stop, you must stop fully, check the traffic, and yield to any pedestrians, cyclists, or vehicles that have the right of way before proceeding. Cyclists often have priority, especially when you are turning across their path. Waiting and allowing the cyclist to pass ensures safety and compliance with traffic regulations.