Playing in the same group, Waring and Otto recorded 14 birdies and one eagle between them to each finish 12 under par at the Oceanico Victoria Golf Course in Vilamoura, Waring returning a flawless 63 and Otto a 64.
Lynn, still struggling with the virus which affected him during last week's Seve Trophy, had shared the overnight lead on six under and late in the day carded his second consecutive 65 with four birdies and an eagle from just six feet on the par-five 12th.
Waring, who enjoyed the first top-five finish of his European Tour career in the Spanish Open in April and has had three more top-10s since, said: "I think the lovely weather's had a bit of a hand in it. I played nice, kept control of my golf ball well, hit it close a few times and holed a few putts.
"I've been playing better for the last few months; I lost by one in Valencia, two in Gleneagles, been knocking on the door a few times so it's nice to keep myself in contention week on week."
Waring, playing on a medical exemption after an operation on a serious wrist injury, is currently 86th on the Race to Dubai and added: "If I can get into one of these big four events (the inaugural Final Series) at the end of the season that would be great.
"I am not going to put too much pressure on myself, I've had a medical (exemption) all year so it's nice to get back into a proper category for next year."
Austria's Bernd Wiesberger completed a 65 to lie one shot off the lead on 11 under alongside Scotland's Chris Doak, who had five birdies and an eagle in his flawless 64 and is yet to drop a shot this week.
"I'm very pleased," said the 35-year-old from Glasgow, who is 112th on the Race to Dubai with only the top 110 after next week's Perth International keeping their full playing privileges for next season.
"Especially bogey-free for two rounds, anybody will take that. It's a job well done. The mind tends to race so I am just trying to relax and when you are you relaxed you can execute the shots properly and that's what I have done the last two days."
South African Justin Walters was a further shot back after a 63 and although he needs a good finish to climb from 126th on the money list, the 32-year-old from Johannesburg has had that situation put into perspective recently.
"We had a family crisis this year, two weeks ago my mum passed away and with her she really took all the pressure," Walters told Sky Sports 2. "I haven't really worried like I have as much and I think my game is in much better shape because of that. I am pretty calm out there and I thank her for that.
"Today was definitely the best round of the year by a long way. I really hit it so badly on the range this morning too, that's the funny part.
"Even little things like that don't bother me as much as they would have earlier in the year. It has been really stressful with mum being sick and I think I took it with me on the course and put too much pressure on myself. The last couple of weeks I have been out here playing for her."
Asked if retaining his card had become a secondary goal, Walters added: "It's hard for me to say that, but yes it is. It would be lovely to do that because I spent so much time away from her trying to achieve this so if I can it would be great."