Correction...

Friends,

Thank you to Grant in the comments for pointing out an arithmetic error in the original post (under the Backing Into Risk Limits section)

This is correct::

💰 Backing Into Risk Limits

Let’s say you want to size your book around a Sharpe 2 strategy. Here’s one framing:

• Daily P&L target: $1,000

• Daily volatility: $8,000
  → Daily Sharpe = 0.125
  → Annual Sharpe = 2.0

Now annualize:

• Yearly expectancy: $1,000 × 251 ≈ $251,000

• Annual volatility: $8,000 × √251 ≈ $126,744

What does this imply for annual ranges?

• A +1 SD year: $124,256 – $377,743

• A +2 SD year: ~0 – $500k

• You're brushing against zero at 2 SDs

Sorry for the sloppy editing on the first one 😔