The Hornets have joined Southampton in the chase for the in-demand striker.
Armstrong, 24, is valued at £25million by Rovers despite being in the final year of his contract.
Watford hope Blackburn will fancy hitman Gray, 30, as part of the deal.
Gray made his name with Burnley and now finds himself out of favour at Vicarage Road.
But Rovers have said they want the cash instead.
That is stalling any move because Saints were told the same despite being willing to trade fellow striker Michael Obafemi, 21.
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