What is the source of the allusion in the sentence below?
Nate was enjoying the lush life his newfound riches had brought him, but he couldn't help but think of his latest cholesterol reading as a Sword of Damocles.

 - ancient legend
 - Shakespeare
The source of the allusion Sword of Damocles is ancient legend.
According to legend, when Damocles wished his life were as full of luxuries as that of the tyrant Dionysis, Dionysis invited Damocles to a sumptuous banquet. Above Damocles' seat at the feast, Dionysis had placed a sword, suspended only by a thin hair, demonstrating the fragile nature of fortune.
The allusion Sword of Damocles means a reminder that one is vulnerable.