The 50-year-old Royals boss has emerged as a leading contender to replace Mick McCarthy who was sacked by the Premier League club last week.
Bookies have now slashed the odds of McDermott taking over at Molineux from 14/1 to 3/1.
Reading are yet to deny the rumours or issue a statement regarding their manager's future.
The Chronicle broke the news that McDermott was on Wolves' wanted list last week.
Royals director of football Nick Hammond denied any approach from the Premier League club, but he was not surprised by the rumours.
Hammond told the Chronicle last week: "Look at Brian's record since he became our manager, it is exceptional.
"We've got a great environment here at Reading that works very well. We're very tight as a group of staff, it's a method that has been successful for many years now.
"What that does is allow a manager to work how he wants to work and in a way that suits him. I think we have seen the benefit of that."
And he added: "Brian's record is right up there with the best managers in the country, so why wouldn't he be mentioned in those terms?"
Reports suggest McDermott has already met with Wolves representatives, though others say a meeting is yet to take place.
He was spotted at Reading's Hogwood Park training ground this morning, wearing a suit.
The Royals boss is on a one-year rolling contract and would not cost a huge amount in compensation.
The Brighton manager, Gus Poyet, has also been linked to the vacancy at Molineux along with Steve Bruce and Alan Curbishley.
It is though McDermott has already held talks with Reading's new Russian owner Anton Zingarevich, who watched Royals beat Burnley 1-0 last Friday alongside chairman Sir John Madejski.
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** ROYALS winger Michail Antonio has joined League One Sheffield Wednesday on loan for the rest of the season.
Antonio, 21, could make his Owls debut in Saturday's Steel City derby against Sheffield United **