H1B Transfer when I am staying on extension receipt.

I am working on H1B visa in US and it is expiring on Sep 30th 2016, My current employer has filed for extension in regular process and I will be working on extension receipt from Oct 1st.

I am getting a nice opportunity with another employer in US and they want to get my H1B transferred to them, my query is whether I can initiate H1B transfer to another employer after Oct 1st when I am staying on I-797 C extension receipt?

The transfer can be filed after Oct 1 as well. However, this will create a bridge scenario as you will be in status after Oct 1 only on the basis of pending transfer. There is a possibility that USCIS may ask for proof of extension approval before approving the transfer petition w/ extension of stay.

Talk to your new employer and see if they will be willing to file it in PP.