I think here lies your problem. I always just upload images to the main directory, but if you are choosing to put them in a different folder, then I suppose your watermark needs to be in images/large/product_images/ folder? Again, I'm not too positive, because I've never uploaded them into a different folder, but I am sure that you have your watermark in the wrong place, since you use a different image folder.
Also, with IH2, you should not be uploading any large images manually. You upload the size you want your large image to be, then IH2 will automatically re-size your small and medium images for you, according to your image sizes set in your admin. But if you were doing it manually (which kind of defeats the purpose of installing IH2 in the first place), again, you have things in the wrong folder, since you are putting your images in a different folder. any large images would need to be in images/large/product_images/
If I were you, I'd make my life easier, and keep everything in the default images folder, as I'm not sure how well IH2 is programmed to work with different folders?
ETA: Here's the faq link for image folder issues:
https://www.zen-cart.com/tutorials/index.php?article=58
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