This one has lots of comedy potential! If kids are yelling out "I saw that!" or "I know how that's done!" and you want to calm them down, let them try and see which hand the red sponge is in. Whatever they say, you can say, "No, the red sponge is not there- but I guess you caught me red-handed!" as you produce the sponge hand.
Or, at the end of a trick where you have used a volunteer, do this trick, producing the hand and saying "Let's give our volunteer a hand!".