if I don't take it off during day ( within say 8 hours ) right where that sensor sits my skin will turn red.
That's happened twice to me, but I don't remember any particular circumstances that might be responsible or if I was wearing my AW or AWS2.
After just examining the back of an AW and my S2 with a 20x illuminated magnifier, I noticed two things:
1) the AW shows
Composite Back around the sensor and the S2 shows
Ceramic Back in the same position. (You don't really need magnification to see it. Just thought I'd mention it.)
2) the AW and AWS2 sensors are visibly different!
Seen close up, the
AW sensor has a slightly wrinkled surface akin to what car guys call 'orange peel' when describing most factory car paint finishes. Neither of these surfaces are as drastic as the surface of an orange, but there is a marked similarity.
However the
AWS2 ceramic back's surface is
very smooth, like highly polished glass. This almost mirrors the Watch case surfaces of the Sport/Aluminum Watches compared to the Stainless Steel Watches.
So it's
possible that the difference in materials could cause some kind of allergic reaction on you.
Another thought (and it's kind of 'out there') is that since you wear your Watch loosely, the somewhat irregular surface is rubbing against your skin enough to irritate it. Not an allergy, but an irritant still. Maybe wearing your Watch a little tighter would correct that. And if you initially wore your Watch with the band tight, then forget everything I just said.
Finally, you might just buy an S2 to try in for a few days. I don't recall Apple's policy specifically, but I think you could return it in a few days (14? 30?) saying it irritates your skin. BB would almost certainly take it back in 30 days.
If you go that route, get a Nike+ in Silver and tell me when you're returning it. I'll be right behind you to swoop on an Open Box purchase!