Step 1 - Cast-on one stitch using the cable cast-on:
A quick visual recap of the cable cast-on. See the above link for more details.
Step 2 - Knit two stitches:
Step 3 - Bind-off one stitch using the knit bind-off:
Up n' over, then drop the stitch off. See the above link for more details.
One stitch remains on RHN.
Step 4 - Knit one more stitch.
Step 5 - Bind-off one stitch using the knit-bind off. (One stitch remains on RHN).
Step 6 - Slip the stitch on the RHN to the LHN, inserting the LHN through the stitch from the bottom up:
You've bound-off one stitch using the picot bind-off! Repeat steps 1-6 until all stitches are bound-off. Basically what you're doing is adding one stitch, then taking away two. Here's what it looks like on k1p1 ribbing.
Nice and stretchy! Me likee.