Hi Zarrolou,
Like the thorny ballooning of a frightened pufferfish or the sudden appearance of angry sapphire hoops for which the blue-ringed octopus is named,
so the California newt's display of its red underbelly is a clear warning that predators ignore at their peril.In my opinion the original choice, that is choice A, clearly presents the intended meaning. It clearly says that California newt’s “display…” is a “clear warning”. The logical meaning is very clear here.
Choice A is incorrect because of “comma + so” that is used to join two independent clauses. There is no clause before “comma + so”. This is so because “like” cannot be followed by a clause.
Now let’s take a look at
choice C:C. the California newt's displaying its red underbelly is a clear warning for predators, so they ignore it at their peril
The issue with this choice is the use of “displaying”. After a possessive noun, we need to use a noun in its proper form and not the verb-ing form. The proper noun form of “displaying” is “display”. Hence, use of “display” will be correct here.
And yes, “it” has no clear referent.
This choice also distorts the intended meaning. Per this choice, the predators ignore the warning because the newt displays its red underbelly. This cause and effect relationship here is certainly illogical.
Hope this helps.

Thanks.
Shraddha