First, successfully complete Sequence one of the story. At the end of the sequence, you will encounter the "Cyclops" boss. There will be a funny cutscene in which your character puts the Cyclop's eye in a goat's rectum. You can later find this eye again. Simply return after Sequence 1 and kill some random goats anywhere on Kephallonia (starting region). After approximately 10-20 goat kills (it is a random drop), it should drop. Goats can easily be killed with the bow from a distance. Make sure to loot the goats after killing them. Goats are found everywhere in that region, and the eye can be dropped anywhere on the island.