Kinetic energy has nothing to do with anything other than motion of the particle.
When a particle with velocity v collides another particle(suppose it is at rest for simplication), assuming that there is perfectly elastic collision between them, the velocity of particle which was at rest becomes mv/M ( assuming mass of particle in motion to be m and at rest to be M) from convervation of linear momentum. And all this transfer of energy happens in a fraction of seconds which is not visible to naked eyes.
Hence 1st option is correct!
