Over the past 11 years, the S&P 500 index (SPX) gained an average of 0.24 percent on the first day of the month, closing higher 63 percent of the time. This pattern is tested on stock index futures in the current issue of Active Trader magazine (see "Controlling risk in a seasonal strategy," May 2009). The strategy buys the market on the last trading day of the month and exits up to four days later, subject to various stop-loss rules. Overall, the system was profitable, although it suffered long periods of large drawdowns.

This lab tests that idea with call options as a substitute for long futures contracts. (Each futures option controls one futures contract.)