Option 1. Clearly. The markets think it will move 7percent. You think 10percent and up. This should be obvious.
Consider a vertical spread instead of buying the calls outright. Nice explanation here: http://www.optionsweekly.com/trading-facebook-earnings-with-options/
It's all about the volatility. There are checks and balances everywhere. Lots of techniques and methods, which basically just allow you to adjust the probability with the potential gain/loss. But no magic. Essentially, there are only two ways: 1. You have to know more than the market does about the earnings, AND how the market will react to those earnings 2. You find abberations in the options prices and take advantage of them.
Agree to the second part, not necessarily the first one. There are a LOT of examples where the implied move is completely wrong, cycle after cycle. As an example, NFLX options underpriced the implied move cycle after cycle, and buying a straddle a day before earnings would be profitable most of the time. That said, this is HIGHLY speculative strategy. If you are wrong, the IV collapse will kill you. I have been implementing a strategy of buying straddles 5-10 days before earnings and selling just before earnings. Had few articles on Seeking Alpha about this strategy: http://seekingalpha.com/article/310...loiting-earnings-associated-rising-volatility http://seekingalpha.com/article/427111-how-to-rent-your-options-for-free http://seekingalpha.com/article/350061-how-i-made-20-in-2-days-on-a-stagnant-stock
Just keep thinking and guessing where market can turn. If you are good at guessing the market then there would be the less chances of risk.