Vardy has two years left on his current deal at the King Power Stadium, but speculation over his future is starting to mount.
The likes of Liverpool, Tottenham Hotspur and Real Madrid have all been credited with holding an interest in the striker by the Daily Mirror.
And Nicholas feels that Leicester should move quickly to ensure that they tie the in-form front-man down for the long-term.
“I don't think they're in a position when they need to sell,” he said. “The type of clubs who come in for him [in January] are likely to be below them in the league.
'If he's well represented he could go in and take advantage of the current situation and benefit himself at the club he's doing the business for.
"There will be interested parties, but will it be clubs of any essence? We aren't expecting Leicester to be in any relegation danger this season, but the teams that come after him might be clubs fighting for survival. He's already been down there, he's on the way up - and an England international.
"If Leicester are clever, they should do a deal with him right now. Get him in now and say 'what are you looking for? We're delighted with how you've done. Let's talk a new deal'.”
At the moment, Ranieri has hinted that Vardy will be offered a new deal by the end of the season, but interest is likely to have picked up in him by then, should he continue his current form.
Vardy has already netted 10 Premier League goals for the season, and he currently leads the scoring charts in England’s top-flight.
He looks confident whenever given an opportunity in front of goal, and Leicester could face a fight to keep hold of him if he keeps hitting the back of the net with such regularity.