Chas pretty much answered the question but I'd like to elaborate a bit on it
When you trade the index or tranches, you trade with specific series as underlying, either on the run series (current series) or off the run series (previous ones).
Every series got rolled over every six months and market perceptions will dictate whether the new, on the run will be favored by the traders.
As of right now, CDX IG Series 10, itraxx Europe series 9 are the on the run series but you still see plenty of liquidity for CDX 9 and iTraxx 8. Normally, liquidity of the off the run will dry up a few months after the roll but it's always an issue of demand and supply.
A clarification on the part of RussianMike's question:
When series 9 rolls over to series 10, a few names are dropped from series 9, the same number of names got added so that series 10 has same 125 names.
When you sell protection on the index IG 9 or 30-100 tranches, it refers to a specific set of underlaying names so the roll over to series 10 does not change your trading position. You are still selling protection on the 125 names that made up the series 9, not series 10.
A few things that can happen to the underlying names
1) If one or more names default, you have to pay for the protection buyer a certain amount.
2) If two of the names in your CDX 9 merged, your index have less than 125 names. Instead of each name having equal weight (0.8%), now the merged name have 1.6% while the rest having 0.8% and so on
In principle, selling protection on the index is identical to selling protection on 125 names individually. But in practice, bid/ask spread and many factors make this impossible.
Some desks hedge by selling index and buy protection on a few names or the other way around. Some desks make money by arbitrage between the on the run and off the run indices. Some desks do relative values between various indices.
There are a whole world out there. The credit index is pretty standardized and transparent. Unless you have some sophisticated tools, it's really hard to make a few bps, let alone free money left on the table.
