My only guess is they have a parallel skunkworks working on the same thing, but in a way that they can keep it closed-source - that this was a hedge they think they no longer need, and they are missing the forest for the trees on the benefits of cross-pollination and open source ethos to their business.
If their primary objective is to break the CUDA monopoly, they should up their game in software, which means going as far as implementing support for their hardware in the most popular user apps themselves, if necessary. But since they don't seem to want to do that, they should really go for option one, especially if a single engineer already got so far.
Let's say AMD sold a lot of cards with CUDA support. Now nvidia tries to cut them off. What will happen next? A lot of people will replace their cards with nvidia ones. But a lot of the rest will try to make their expensive AMD cards work regardless. And if AMD provides a platform for that, they will get that work for free.