Activision Blizzard, Inc. (ATVI) is a developer and publisher of online, personal computer (PC), video game console, handheld, mobile and tablet games. The Company operates through Activision Publishing, Inc. (Activision) and its subsidiaries, Blizzard Entertainment, Inc. (Blizzard) and its subsidiaries, and Other segments. The Company also develops products spanning other genres, including first-person action, action/adventure, role-playing, simulation and strategy. It is reporting earnings on Thursday, August 4, after market close:(Source: TD Waterhouse)As evident from the above, the company beat earnings estimates in 88% of time in the last two quarters, underperforming in 12% of time, and has seen substantial volatility in the market price of its stock over the last three months: $ATVI, Activision Blizzard, Inc / 60 The market participants expect the following numbers over the next few quarters, including the upcoming one:(Source: TD Waterhouse)Market data show that the August options are relatively inexpensive:(Source: TD Waterhouse)The three-week straddles (options with a strike price of $40.50) are worth around 8.1% of the current market price of the stock. Historically, the stock has been more volatile than that on a monthly basis over the last year:(Source: Google Finance. Calculations by author)As you can see, the stock has had a monthly standard deviation of 9.5% over the last 52 weeks, while the straddle expiring in a bit less than three weeks has an implied monthly volatility of around 7.2% (calculated based on 12 business days remaining until expiration), also including volatility from the earnings event this week. I therefore see signs of modest overvaluation in these options. Hence, buying the straddles is a good idea only because of the earnings event tomorrow.Investors may be interested in selling out-of-money options to partially fund the trade:(Source: optionsprofitcalculator.com)On the one hand, this will limit expected returns. On the other hand, this action will minimize losses in the event the stock does not move swiftly over the next three weeks. The risk-return profile of this trade looks like this:(Source: optionsprofitcalculator.com)What do you think of this trade?