Petroleo Brasileiro SA Petrobras (PBR) is a Brazil-based integrated energy company. The company operates in the Exploration and Production (E&P); Refining, Transportation and Marketing (RTM); Gas and Power; Biofuels; Distribution, and International segments. E&P includes exploration, development and production of crude oil, natural gas liquid and natural gas in Brazil. It is reporting earnings on Thursday, August 11, after 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 the rest of time, and has seen modest volatility in the market price of its stock over the last three months: $PBR, Petroleo Brasileiro S.A.- Petrobras / 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 $8.50) are worth around 8.4% 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 22.1% over the last 52 weeks, while the straddle expiring in a bit less than two weeks has an implied volatility of around 12.8% (calculated based on 7 business days remaining until expiration), also including volatility from the earnings event this week. I therefore see signs of modest undervaluation in these options. Hence, buying the straddles is a good idea from the theoretical standpoint.Investors may also be interested in initiating iron condors, if they believe the options are, in fact, overvalued:(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 moves swiftly over the next three weeks. The risk-return profile of this trade looks like this:(Source: optionsprofitcalculator.com)As you can see, the "window of safety", which is equal to the distance between the break-even prices, is around 12.8%. This means that the stock has to move by about 7% in either direction by next Friday in order for investors to start losing money. The risk-return ratio of around 1:0.56 is in-line with this type of trades.What do you think of this trade?