I've always disposed of oily rags by putting them straight into a lidded 5 gallon container that is at least half filled with water, completely submerging them in water and closing the lid. I think that mitigates the risk pretty much immediately as opposed to hanging stuff out to dry and risking them blowing away or wadding up. Once the pail is close to full, then that mess gets tossed in the dumpster.
I've seen an oily stain rag pile begin to smoke and smolder in the driveway (outside) on a spring day of a new home job site. It definitely happens.