My guess would be that it's iTerm intercepting things.
You might find this site helpful. It says:
Select Profiles > Open Profiles… from the menu bar, or press Command-O and take a look at the default profile. Click on the Keys section. While you are here verify you have Left Option and Right Option as
+Esc
.For the arrow key fixes though you will need to add a series of key shortcuts. The easiest way to get started is select Load Preset… > xterm Defaults