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The new Puppet Tool, which was originally in Adobe After Effects can now be found in Photoshop CS5. It can be used to create a basis shape form or create points, and wrap images around it. In the following eaxample we take the image of a rope and we will be using the Puppet Warp tool to create our text effect. To use this technique properly we need to have an image of a decently long rope. We start by removing the external part of the layer, leaving Just the rope. You can do this with Magic Wand Tool. Now go to Edit > Puppet Warp with the layer selected and the default mode should show you a mesh over your object; you can hide this by deselecting the Show Mesh option.
Now you can start adding points on the rope you will be using as pivots to twist the rope around. Then holding [Alt] and hovering over the points you can see a little circle which you can use as a controller to rotate the rope at that particular point. Take some time and keep doing this at separate points to create the text of your choice using this rope.