Apple TV 4K upgrade lost optical digital audio port

You would connect Apple TV to your receiver via HDMI input and then the receiver would connect to the TV using HDMI output.

Are you saying you have a receiver that does not have HDMI inputs, if it does sound & video is carried via HDMI, therefore there is no need for a optical audio port on the Apple TV. If you do not use a receiver but go Apple TV - TV - Sound bar then connect a HDMI cable from the Apple TV to the TV and use the TV's Optical output to your sound bar .

Finally please ensure you are using a 4K capable HDMI cable, if you are using an older HDMI cable you may need to upgrade that cable. Something like the following is fine:

https://www.amazon.com/Highwings-Braided-Cord-Supports-ARC-Compatible-Ethernet/dp/B07TDH11BJ/ref=sr_1_1_sspa?dchild=1&keywords=4K+HDMI+cable&qid=1615050085&sr=8-1-spons&psc=1&spLa=ZW5jcnlwdGVkUXVhbGlmaWVyPUExTDAxTUVIQkJJUVdaJmVuY3J5cHRlZElkPUEwMjc1OTg2MkNFNjhaVk9aS0I2SiZlbmNyeXB0ZWRBZElkPUEwMzk3NDQ1MVAySzFONE1XMUpLQyZ3aWRnZXROYW1lPXNwX2F0ZiZhY3Rpb249Y2xpY2tSZWRpcmVjdCZkb05vdExvZ0NsaWNrPXRydWU=

I have a 3rd gen Apple TV so will the HDMI cable work with a 4k, 4th generation version? My TV is not a 4k so is it really necessary for now?

Thx

If your TV is limited to 1080P then that the Apple TV will detect that upon setup and your existing cable would work for that.