Watters was technically a Captain, given the battlefield commission by his predecessor.
Or at least that's what he himself claims. Apparently, nobody else really heard the dying words of the original skipper...
That was a nice touch of ambiguity there. Perhaps Watters did get the skipper's blessing for at least part of what he was doing. Perhaps the Captain's dying words were more on the lines of "Take your knee off my windpipe, you murderous bastaaaaa..." and Watters would have been his last choice for command. Perhaps there were no words. The episode works regardless of the facts.