On the "how ETF arbitrage works" page, investopedia says
The arbitrage opportunity happens when demand for the ETF increases or decreases the market price, or when liquidity concerns cause investors to redeem or demand the creation of additional ETF shares. At these times, price fluctuations between the ETF and its underlying assets cause mispricings. The NAV of the underlying portfolio is updated every 15 seconds during the trading day, so if an ETF is trading at a discount to NAV, a company can purchase shares of the ETF then turn around and sell it at NAV and vice versa if it is trading at a premium.
For example, when ETF A is in high demand, its price rises above its NAV. At this point the AP will notice the ETF is overpriced or trading at a premium. It will then sell the ETF shares it received during creation and make a spread between the cost of the assets it bought for the ETF issuer and the selling price from the ETF shares. It may also go into the market and buy the underlying shares that compose the ETF directly at lower prices, sell ETF shares on the open market at the higher price, and capture the spread.
From what I understood, for the above explanation to be correct, the ETF's (NAV per share) and the price of the ETF share that's traded, are two completely separate entities. The former is determined by the price of the ETF's underlying assets and the latter is defined by the supply and demand of the traded ETF share itself.
If I'm correct, then this implies that the ETF share price and the NAV per share are forced to be equal due to arbitrage traders only? I mean, if for example I was an insane/idiot trader, willing to quote a bid price higher than the current ask price and I complete that trade, this would mean that the ETF share price definitely goes higher than the NAV per share value. Now, how does the ETF share price again go back to matching the (NAV per share) value? Is it just that the market 'believes' that the ETF share price is supposed to be equal to its NAV per share, and hence no one would bid for the ETF share at a price higher than (NAV per share)?
Also, in this case, how would someone, who doesn't own any of the ETF shares, be able to capitalize on this mispricing? First of all, am I even correct about how the mispricing occurs?