Cree, Inc. is a manufacturer of lighting-class light emitting diode (LED) products, lighting products and semiconductor products for power and radio-frequency (RF) applications. The company's products are focused for applications, such as indoor and outdoor lighting, video displays, transportation, electronic signs and signals, power supplies, inverters and wireless systems. The company has three segments: Lighting Products, LED Products, and Power and RF Products. It is reporting earnings on Tuesday, August 16, after market close:As evident from the above, the company beat earnings estimates in 63% of time in the last eight quarters, underperforming in the rest of time, and has seen significant volatility in the market price of its stock over the last three months: 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 a bit overvalued:(Source: TD Waterhouse)The one-week straddles (options with a strike price of $28.00 and expiring on August 19, 2016) 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 11.5% over the last 52 weeks, while the straddle expiring in a bit less than a week has an implied monthly volatility of around 5.0% (calculated based on 4 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, selling the straddles is a good idea from a theoretical standpoint.Investors may also be interested in buying out-of-money options for hedging purposes:(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 moves swiftly over the week. The risk-return profile of this trade looks like this:(Source: optionsprofitcalculator.com)As you can see from the above illustration, the "window of safety" is around 12.1%. This means that the stock has to move roughly 6% in either direction from the current price by expiration in order for investors to start losing money. The risk-reward ratio of around 1:1.31 is in line with this type of option strategies.