The 28-year-old striker has made just two appearances for the high-flying Hornets this season.
He wants out of Vicarage Road and is likely to leave the club when the transfer window reopens next month.
Championship leaders Wolves are looking for extra firepower for the second half of the campaign.
Nuno Espirito Santo has limited back up for loanee Leo Bonatini, who is the division’s second top-scorer.
Molineux chiefs were close to landing Okaka on loan towards the end of the summer window.
The four-cap Italy international joined Watford from Anderlecht in 2016 on a five-year deal but has struggled to make an impact.
He scored four league goals in his maiden season but has fallen down the pecking order under new boss Marco Silva.
Okaka has managed just nine minutes of football since scoring on the opening day of the Premier League seasons against Liverpool.
He reportedly believes he has no chance of reviving his relationship with Silva since being left out of the squad for August’s EFL Cup game against Bristol City.