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How do I cut out a stroke around text?
Right click the type and select "Create Outlines"...
Select the paths you want to delete (the path segment, not the anchor points) with the Direct Selection tool... Hit delete...
Simply go to Object -> Expand and it will do the trick for you.
P.S. If your text was not outlined first do right click -> Create Outlines
Just remember that you won't be able to edit text afterwards.
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