Use the background and event method. The background is the ongoing scene, she in front of the TV, and the event is the sudden arrival of her husband.
- Background action equals Past Continuous, was/were plus ing.
- Event that breaks in equals Simple Past.
- Came is already simple past, so it is the event.
- The background must therefore be was watching, not watch, is watching, or an empty blank.
Option 1 fails because watch has no tense marker. Option 3 is present tense, wrong time frame. Option 4 leaves the blank empty, which breaks the sentence. Only was watching fits.