Why cut the price?
According to Microsoft spokesman Shane Kim, the move is aimed at attracting new buyers.
“We’re all about bringing as many people as we can to Xbox,” he tells Fast Money. “And we’re entering the very important holiday season and we want to provide more value.”
Although Microsoft says the move has little to do with rivalry, it’s well worth noting Sony made a similar move already on its Playstation 3 console.
And now analysts say the cuts could pressure Nintendo to lower the price of its best-selling Wii console, which retails for $249, but for now the company is standing firm.
So, who wins?
Since PS3, Xbox and other consoles are increasingly centerpieces of home entertainment, their sales can spark purchases of software, accessories and other items boosting traffic at retailers such as Wal-Mart or GameStop .
Beyond console sales, the cuts could provide a lift to the broader gaming industry. Indeed, game publishers like Activision Blizzard have clamored for price cuts, which often boost sales of software.
And while the unit that runs Xbox is a small part of Microsoft's overall sales -- at about 11 percent -- it is the company's biggest weapon in the battle to control entertainment in the living room.
What's the trade?
If Microsoft gets above $25, I'm a buyer, says Joe Terranova.
I wouldn't wait for $25, I'm a buyer of Microsoft at current levels, adds Pete Najarian.
If you want to take a flyer I'd trade it with Electronic Arts, counsels Guy Adami.
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Trader disclosure: On Aug 27th, 2009, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Terranova Owns (AMZN), (MSFT), (FCX), (BTU), (SU), (XOM), (WFT); Terranova Is Short (SHLD), (EES); Terranova Owns (CCL) Puts; Adami Owns (AGU), (C), (GS), (INTC), (BTU), (MSFT), (NUE); Najarian Owns (AAPL) Call Spread; Najarian Owns (BAC); Najarian Owns (BUCY) & Short (BUCY) Calls; Najarian Owns (C) Calls; Najarian Owns (FCX), Is Short (FCX) Calls, Owns (FCX) Puts; Najarian Owns (HGSI) Call Spread; Najarian Owns (JPM) & Short (JPM) Calls; Najarian Owns (MS) And Is Short (MS) Calls; Najarian Owns (MSFT) And Is Short (MSFT) Calls; Najarian Owns (PALM) Calls; Najarian Owns (TXT) Calls; Najarian Owns (TEVA); Najarian Owns (V) & Short (V) Calls; Najarian Owns (WFT) Call Spread; Najarian Owns (YHOO) Call Spread; Najarian Owns (XHB) Call Spread; Cortes Owns (SPX), (GS); Cortes Is Short Nasdaq 100; Cortes Is Short (JPM); J. Najarian owns (DELL) Calls ; J. Najarian Owns (AAPL) & Short (AAPL) Calls ; J. Najarian Owns (CHU)