This is one of the strategies that's been vaguely mentioned in a few places over the years: 'Stock Market Wizards' (if I am not mistaken) and few on line resources. It's been effectively dead for years now, but back in the days this was go to place for us to make money with unreal risk reward ratios.
First, what auctions are:
https://www.investopedia.com/articles/investing/091113/auction-method-how-nyse-stock-prices-are-set.asp
So, what happens on the open and close people submit limit/market buy orders for the auction and that creates buy/sell imbalance on particular stock. 99% of the time it has no to very little impact on the price of that security, but... in times of extreme volatility (that is very unlikely to come back ever again) or on certain events like:
https://www.investopedia.com/terms/q/quadruplewitching.asp
there is a lot of additional flow with orders that need to be matched and that creates arbitrage opportunity for informed market participants.
How, does it work?
One way to execute that strategy on the open was to send basket of limit orders for ungodly amount of stocks well below or above the price they should be trading at (taking into the account beta of stock and what index is doing, let's say market is down 3%, you want to start buying everything with beta of 1 at -6%+). Obviously you need to take into the account news/earnings and exclude these stocks from your list. Auction proceeds, trading commences and hopefully you've got a few fills. Now you can hedge out risk by buying/shorting the index, wait for things to settle down after the open and manage/trade out of your positions. Voilà. You've effectively bought/shorted at value, hedged out the risk and patiently waited for prices to come back to equilibrium.
Closing auction was a bit different animal. You could get indication of what imbalances and prices would be an hour before the close. People would start positioning themselves and manage theirs or their clients positions to achieve best execution and be on the right side.
Occasionally you would have some entity dumping or buying serious amounts of equity in last 15 minutes. If there was a huge sell imbalance with price indication well below current market price way to go would be to short on the market and then buy back on closing auction. Or do the opposite if indication was to the upside. And most of the times it would work brilliantly, expect for these few times where you would get absolutely destroyed.
