What Is the Risk of “Gap Risk” When Rolling an Options Contract?

Gap risk refers to the possibility of the underlying asset's price making a large, sudden move (a "gap") between the time the expiring option is closed and the new option is established. This is common during market closures or high-impact news events.

If the gap is unfavorable, the hedger may be forced to buy the replacement option at a much higher premium, or the position may become unhedged for a critical period.