1) Cut out a stocking template, trace a stocking you have, draw one, etc. You can find a template here if you don't want to improvise. I messed around a lot with patterns, making some toes more "elfish," some are short, some are long and skinny like knee socks.
2) Pin the template to your sweater and cut around it generously.
3) Sew right sides together then hem the edges of the top of the stocking.
If you want a more finished top, use the sleeve cuff of the sweater as the top of your stocking.