There are many different ways to get to a similar position, but the steps described in this instructable are usually considered to be the definitive steps to doing the trick.
I highly suggest learning the steps to this trick with a dead (non-spinning) yo-yo.
The main reason I published this trick was to demonstrate that instructables could be more than just a too to share "what you make". Thanks Shan for help with the photos.
For more yo-yo tricks and videos you can check out my site DoctorPopular.com
Step 1: The First Hand Position
While the yo-yo is spinning, place your non-yo-yo hand halfway down the string.
Keep your palm facing towards your body with the string between your body and your hand.
Step 2: The Second Hand Position
Step 3: The Final Position
Now move your freehand palm down and with your fingers pointing forward.
This creates the "cradle". Simply rock the yo-yo back and forth using your yo-yo hand. You can use your thumb and fingers to make the cradle as wide as possible.
After your done with the trick, you can just take your freehand out of the cradle and you'll be out of the trick.
BTW, if you followed all the steps exactly, then it'll be pretty hard to get a knot in the string while doing the trick and will make it easier to do variations.