Sooo many different ways...
on a new layer
1. make the circle with the gradient tool(with one ends value having 0% opacity and moving the other colour along the gradient)
or
2. select the circle (ctrl+click on the thumbnail in the layers palette) Select>modify>contract then invert the selection, use the eraser tool on the circle.
or
3. Create a mask in the circle layer, and use the gradient tool (like above) on the mask.
or
4. simply use the brush, with whatever level of Hardness(feathering) you want and apply it in one place on a new layer
or
5. Use the gradient tool with both points of the same colour(or one the colour you want and one the background colour) change one of the colours(or the background colour value) and reduce the opacity to 0%.
Move the other colours opacity slider along the gradient(keep at 100%) to near(depending on how much 'feathering' of the edge you want), and draw a circle(select the middle point and drag to the outside edge).
or combinations of above
Just a few ways to get you started(there are more). Muck around with these and if anyone else thinks of any ideas, they'll tell you.
Moe: It could have been a real ugly situation, but luckily I managed to shoot him in the spine.