Step one:
Open your target image (Example is a photo of a holiday design gift bag).

Step two:
Make a copy of the background layer. With the elliptical marquis tool, set the Feather to 5 pixels and make an oversize selection.

Step three:
Filter, Distort, Spherize (default settings are okay: amount = 100%, mode = normal). Note: if your selection is too big or too small, delete the step from History, then Select, Modify, Contract or Expand by a few pixels and try again. The oversized selection will give the "roundness" needed to mimic a curved sphere.

Step four:
Select, Inverse, then Edit, Cut. Lastly, delete the original Background layer and there's your Christmas tree ornament!

Step five:
(Optional) - Embellish with a bit more realism. (Use Smudge tool and create "neck" and Paintbrush to create "hook").