Prompted by a question from Tim Rosenblatt and answer from Matt Williams about how to move forward and backward by words in OS X Terminal.app, I wanted to see how to do this in iTerm. Referencing the article Matt sent made it easy.
In iTerm, choose Manage Profiles from the Bookmarks menu. Expand the Keyboard Profiles tree, choose the Global profile and add a new mapping. I want to use Option+Left Arrow for back and Option+Right Arrow for forward. Here's what my settings look like for back:

Since these are Global, I had to choose the High interception priority option to get them to work. Do the same thing for forward, but use f for the escape sequence to send.
