When we operate on blockchain nowadays, we still lack tools that protect us against a counterparty risk. If we buy an option we will often do that on an anonymous execution contract with an anonymous counterparty - a contract or an externally owned account - on the other side of the trade.
For that reason, even with all the benefits of smart execution on blockchain, removing the trust requirements would be to no avail should we not introduce full collateralization to our option contracts.
Digital assets of predictable value (stablecoins) can serve as a collateral for Oiler options. In particular USDC is used in all the initially deployed option contracts. Each option contract locks 1USDC which is paid out to the holder when the option is exercised or returned to the writer if the option expires.
From a perspective of an option writer collateral is locked. After exercise the collateral is withdrawable by the holder and after expiry the collateral is withdrawable by the writer.
Collateral that is no longer locked in an active option (one that neither got exercised nor expired) can be withdrawn by the holder (if exercised) or by the writer (if expired).
To withdraw collateral you can call an appropriate function on the smart contract or withdraw collateral from the UI.
Collateral remains locked as long as the option is active (neither exercised nor expired).