On March 5, if he remains unsigned, Watson will hit the free agent market. And the expectation is that, at that time, he will be unsigned.
His new agent Drew Rosenhaus told me that he's "spoken with the team, and I anticipate he'll be a free agent."
Watson, as you know, was a draft classmate of Vince Wilfork's in 2004. He had just 29 catches this year, so it makes sense that he might want a fresh start elsewhere.