A circular sheet of paper is folded along the lines in the directions shown.…

The paper is folded twice, so each cut made in the final folded quarter is reproduced symmetrically when the folds are opened in reverse order.

• The cut made along the vertical folded edge produces matching horizontal rectangular openings on the upper and lower sides after complete unfolding.

• The cut made along the horizontal folded edge produces matching vertical rectangular openings on the left and right sides.

• The curved cut near the intersection of the fold lines is reflected across both folds and forms the central circular opening.
  

Therefore, the completely unfolded sheet matches Option 1.