As has been widely noted,

Sirius Satellite Radio

(SIRI) - Get Report

has become one of the most popular speculative trading vehicles. It represented nearly 10% of the

Nasdaq's

volume Monday as it continues to ramp higher.

The stock has more than doubled in the last five weeks and was up another 10% today in recent trading. Its options are once again near the top of the most-active board and have logged over 85,000 contracts thus far Tuesday. A preponderance of the volume has been focused on the call side: more than 2.5 calls have been traded for every put. The December $10 and January $10 strikes are getting the most play.

Sirius Volatility

The implied volatility has been climbing. The January $10 calls are currently over 105%, up from 65% just three weeks ago and approaching the 52-week high of 115% hit last January. These should be starting to draw premium sellers to the flame.

I'd proceed with caution here because it's impossible to know where it can stop. Still, with the company raising its subscriber-growth projections, it's getting increasingly dangerous and vulnerable to any disappointment setting off a 20%-30% "correction."

One approach might be to short the December $10 calls at 90 cents and buy some stock on a 3:1 ratio (short three calls/buy 100 shares). This starts as delta neutral, gives you downside protection to about $6.25, and has a maximum profit of $3.70 per 3:1, which can be achieved at $10. Be aware, though, that it starts losing money and gets increasingly short above $11.50 per share.

Nvidia

(NVDA) - Get Report

is another top performer, although it's flying a bit lower on the media-hype radar. Ever since the stock was sliced by 33% to below $10 in August on disappointing earnings, it has been spiraling higher. Shares now trade some 140% above that ugly August day. It was rising another 9% to $24 in recent trading Tuesday, prompting some above-average call volume in the December $22.50 and $25 calls.

Powering the stock's recovery has been a string of contracts supplying graphics for

Microsoft

(MSFT) - Get Report

; today's move is the result of a deal with

Sony

(SNE) - Get Report

. Illustrating the steepness of the recovery is the fact that the $17.50 strike remains the site of peak open interest.

I'm sure that when the stock gapped up on early November, taking it right through August's gap down, it caught quite a few shorts staggering. That has contributed to what is turning into a parabolic turn up. The stock is clearly becoming overbought, and resistance around $25-$26 should prove formidable.

The implied volatility is currently around 53%, which is in the middle of the range. The December calls, however, have a slight premium over January's, suggesting that a calendar spread might make sense.

You could sell the December $25 call for 45 cents and buy the January $25 call for $1.20, or a net debit of 75 cents. The position would benefit from the fact that Nvidia should need a rest here below $25, allowing you to collect the December time premium as those calls expire worthless, leaving you outright long the January calls and ready to profit if the stock goes above $27.50. After a little consolidation, it would not be unreasonable for the stock to make a run to a new 52-week above $28.

Steven Smith writes regularly for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. He was a seatholding member of the Chicago Board of Trade (CBOT) and the Chicago Board Options Exchange (CBOE) from May 1989 to August 1995. During that six-year period, he traded multiple markets for his own personal account and acted as an executing broker for third-party accounts. He invites you to send your feedback to

steve.smith@thestreet.com.