Your document needs to be in RGB Color mode.
Selection Tool
Click on the shape you want to CUT
Properties Tab
No Fill (red line through a white box) & Black Stroke with 0.1pt thickness
Selection Tool
Click on Image embedded in your document
Object
Image Trace
Make and Expand
Selection Tool
Click on the Text and then Right-Click (or two-finger click or Control key + click) to see the menu