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. Pulse until pureed.
Stir watermelon puree into a large pitcher with 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.
