You've just got to go for 2 and get your listing fee back - leave neg feedback (which you've already done) and re-list.
I hate time wasters!
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2) I feel I have no other option but to end communication with the buyer. (Available on the 8th day after dispute is filed or once the buyer responds)
You'll get a Final Value Fee credit and the buyer will get an Unpaid Item strike.
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