If you selling a collar you are actually buying volatility (I.e. you are profiting from volatility increasing) on the downside (the put side), while you are selling volatility on the upside (I.e. you are losing if volatility is going up) on the upside (on the call side).
You're totally right - I think my fault was to write "hedge against volatilty" if what I should have done was "hedge against a crash", which is exactly what "buying" a collar does - it protects you from volatility to the downside, while the collar seller will profit from it. I'll change the title accordingly - it also may be catchier then
I'm not an options expert, I discovered them a short time ago, when I was researching for hedging strategies and instruments for that. So I think you can give valious input to this thread.
I have looked at Tier Nolan's Atomic Swap model again, above all to try to answer the question "where to put the premium payment?". The authors of the paper I linked above argue that to do that in the correct way with Bitcoin a new opcode would be needed. But looking at the model, this seems not necessary if you pay the premium:
1) in stablecoins if you are buying a "put option atomic swap" (=allowing you to buy stablecoins for the strike price),
2) in Bitcoin if you are buying a "call option atomic swap" (=allowing you to buy Bitcoins for the strike price).
Explanation below.
From the perspective of the "collar buyer", i.e. the person who wants to protect from crashes buying a put option while selling a call option, this means: they have to pay stablecoins and will get Bitcoin for it. This is of course not ideal because an additional exchange operation would take place.
Explanation: In Tier Nolan's Atomic Swap model you have four transactions, two on each blockchain. A is the option buyer - the person who "set up" the contract and can chose to execute it or not, B the option seller. So we need a mechanism to pay from A to B.
Simplified description of the transaction in Tier Nolan's model:
TX1 on Blockchain X: Transaction paying the value in Coin X of the exchange from party A to B
TX2 on Blockchain X: Refund transaction with timelock if the exchange doesn't take place.
TX3 on Blockchain Y: Transaction paying the value in Coin Y of the exchange from party B to A
TX4 on Blockchain Y: Refund transaction with timelock (shorter than the timelock of TX2).
From my interpretation, the premium payment can only be inserted into TX3. TX3 is signed by party B (option seller). If it included an input from A going to B for the premium payment, the deal would be approximately: "B only gives the option to get Coins B if A pays the premium."