Here is some interesting speculation by Michael Martinez. He seems to favor options 2 and 3 above.
http://www.suite101.com/article.cfm/tolkien/35612
"In the book, Gandalf reported to the Council of Elrond that Saruman wore a ring on his finger, and that he named himself "Saruman Ring-maker". If Saruman indeed had made a Ring of Power, he would have been using it to enhance his own native strength (and he would have had to put a part of that strength into his ring). Was it as great as the One Ring? No. We can be sure that Saruman's ring failed when all the others failed. When Gandalf, the hobbits, and the Elves of Rivendell and Lorien overtook him in Dunland after Sauron had been defeated, he told the Elves, "I did not spend long study on these matters for naught. You have doomed yourselves, and you know it. And it will afford me some comfort as I wander to think that you pulled down your own house when you destroyed mine." "