How to: Install Mac OS X on an external drive
I recently had an iMac stop booting because of some back sectors on my hard drive. Unfortunately, I needed to get some files off of it. After digging around I found that you can install and run Mac OS X from an external drive. This can be an external USB, FireWire, SDHC or SDXC card, or a Thunderbolt storage device. You simply select the external device instead of your internal one when running the install.
The key is that when you partition drive click the Options button and select the GUID Partition Table radio button. This will allow the disk to be used with an Intel-based Mac.
Here is the link to the Knowledge Base article on Apple’s support section giving you step-by-step directions: