Answer: Because Mudd deactivated it himself, releasing it back to its own time, which was probably set to a time just before the heist.
The time watch was designed to create a loop in time, bringing its wearer back to the point of time the watch was attached to. This allowed Mudd to learn everyone's reactions to his plans, and changing his tactics so he covered all outcomes.
When the crew discovered this fact, they tricked Mudd into thinking he had finally won by surrendering. When Mudd was satisfied on the Bridge that he no longer needed the watch, he tapped some command into the watch. Since the watch was tied to a specific point in time that Mudd set it to, when Mudd released it, it probably returned back to that point in the past.
Going off of sources, there is no other mention of this 'Time Watch' in any other source. So it's probably best to think of it like the Doctor's Mobile Emitter from ST:Voyager; it's a one of a kind item for the current timeframe. Considering that we only see Mudd deactivate and 'release' the watch once, it's possible that Mudd knew what would happen, and we also don't know the point in time Mudd calibrated the watch to.
The likely answer would be that Mudd had the watch set to before the heist, and every time he jumped back, he jumped back to before the heist. This means that Mudd had to repeat a lot of events in order to get back to exacting his revenge on Lorca.
In the episode, Mudd explains to Lorca that he's already killed him 53 times, just before killing him for the 54th time. Mudd also says he has 'all the time in the world'. This would suggest that Mudd doesn't mind repeating a lot of events in order to get what he wants.
This wouldn't be too far fetched, considering that Mudd already has the heist mastered through repeating it many times, and Mudd enjoyed finding new ways to kill Lorca, and then finally in the end wants to defeat him instead.