assuming that the fair value and the price mapping were close, then you enter into a "mispriced" position, but since you dont take any positions in the index, how do you make money? i mean if you buy a mispriced stock at t=0, if the market goes down from there, your "mispriced" stock is just going to tank with the market?
If the ES move by 1-2 point or something that doesn't change the FV of you stocks that much. Over that it is true that your orders could put you in a bad position. You can watch the ES and cancel your pending orders if there is too big a move. Nothing you can do about orders already filled. You have to trade them accordingly. That is the risk in providing liquidity, and because of this risk, there is a little premium that we earn in the OPG. Most of the time the ES dosen't move that much. 2-3 months ago it did and it was a little harder to trade. There is no free lunch here.
We tend to sell when market gaps up, looking for quick reversal, and buy when market gaps down looking for the same thing. And, as always, we have "company" in the NYSE Specialist who is required to be on our side. And, as with everything, things "can" and "do" go against us at times. This is just a high probability entry. Don
If your limit is better than the opening print you get batched at the opening. So you don't have to be "right". You just have to have your order in the book better than what the Spec is going to open at. So you ARE providing liquidity.