I bought this watch ___ twenty dollars. 

The correct answer to the question "I bought this watch ___ twenty dollars" is "for". We use "for" when we want to indicate the price of something that we are buying. For example, we can say "I bought this book for twenty dollars" or "I bought this shirt for fifty dollars". We typically use "in" to talk about time or location, "at" to talk about location or time, and "by" to talk about the means of doing something. In this case, "for" is the best choice to indicate the price of the watch.