FreightCar America, Inc. (RAIL) is a manufacturer of railcars and railcar components that operates in the Manufacturing segment. The company designs and manufactures a range of railcar types for transportation of bulk commodities and containerized freight products primarily in North America, including open top hoppers, covered hoppers, and gondolas along with intermodal and non-intermodal flat cars. It is reporting earnings on Monday, August 1, at market close: (Source: TD Waterhouse)As evident from the above, the company beat earnings estimates in 50% of time in the last eight quarters, underperforming in 50% of time, and has seen modest volatility in the market price of its stock over the last three months: $RAIL, Freightcar America, Inc. / 60 The market participants expect the following numbers over the next few quarters, including the upcoming one: (Source: TD Waterhouse)On the other hand, market data show that the August options are relatively cheap: (Source: TD Waterhouse)The monthly straddles (options with a strike price of $15.00) are worth around 13.8% 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 15.9% over the last 52 weeks, while the straddle expiring in a bit less than a month has an implied monthly volatility of around 13.4% (calculated based on 15 business days remaining until expiration), also including volatility from the earnings event next week. I therefore see signs of modest overvaluation in these options. Hence, selling the straddle is a good idea from the theoretical standpoint. Investors can also be interested in buying out-of-money options to hedge the straddles: (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 next three weeks. The risk-return profile of this trade looks like this: (Source: optionsprofitcalculator.com)What do you think of this trade?