UPDATE 7/30: Following on from releasing a security update for iOS, iPadOS, and macOS BigSur, Apple has now also issued a watchOS 7.6.1 update.
Just like with the iPhone, iPad, and Macs, it seems the Apple Watch operating system suffers with the same IOMobileFrameBuffer problem that allows memory corruption to occur and arbitrary code to be executed. So Watch owners are encouraged to update their device immediately to fix the vulnerability.
To update an Apple Watch, open the Apple Watch app on your iPhone, then tap My Watch, go to General > Software Update. The 7.6.1 update should appear, after which tap “Download and Install” to apply the update and close the security hole.