To make a simple syrup: Bring 1/2 cup sugar, water, and orange zest in a small saucepan to boil, stirring constantly. Simmer until sugar is dissolved, about 3 minutes. Remove simple syrup from heat and allow to cool completely.

Place watermelon in a blender or food processor; blend until pureed.

Stir watermelon puree into a large pitcher with prepared simple syrup, tequila, and lime juice.

Place a small amount of salt or sugar into a saucer. Rub edge of margarita glasses with a lime wedge to moisten. Lightly dip the rim of the glass into the saucer to rim the glass; tap off excess salt or sugar.

Fill rimmed glasses with crushed ice; pour margarita mixture into glasses and garnish with lime wedges to serve.