I'm afraid that you're wrong about how Atmos works. Previous Dolby standards worked as you describe, but Atmos is most similar to your alernative 2. Atmos has

I'm afraid that you're wrong about how Atmos works. Previous Dolby standards worked as you describe, but Atmos is most similar to your alernative 2. Atmos has up to 128 audio tracks which are each positioned and moved within a virtual 3D space. The Atmos reciever then processes this 3D space and outputs a number of channels tailored to your specific speaker set up, wherever they are positioned (and however many* speakers you have). I don't know if Atmos for headphones currently includes HRTF processing, but there is no technical reason it couldn't. *(I believe state of the art limit for home systems is 64, but this is a hardware issue, rather an a limit of the format)