Wash and trim the squash. Cut into 1/2-inch wide crescent wedges.
Pack squash wedges lightly into clean wide-mouth canning jars along with chili peppers and bay leaves.
Combine vinegar, water, salt, sugar (if using), peppercorns and mustard seeds in a saucepan and bring to a simmer, stirring occasionally to dissolve salt and sugar and infuse the flavors of the spices. Pour the hot brine into the jars, covering the squash and spices. Allow to cool, then cap with lid and refrigerate.
You can enjoy these refrigerator pickles almost immediately. Keep refrigerated. Best enjoyed within 2-3 months.