Hit king on flop re raised best move?

[ATM]

Villain has just sat down and this is the first hand he has played. Villain has bought in for $5.60.

Hero is button and Villain has posted his BB instead of waiting on the BB so its:
Button = Hero ($15.50)
SB
BB
Villain ($5.60)

Hero is dealt K[img]/images/graemlins/diamond.gif[/img] Q[img]/images/graemlins/diamond.gif[/img]

Villain checks, 2 folds, Hero raises to $.50, SB folds, BB folds, Villain calls.

Flop ($1.15): K[img]/images/graemlins/spade.gif[/img] 8[img]/images/graemlins/diamond.gif[/img] 5[img]/images/graemlins/spade.gif[/img]

Hero bets $1, Villain raises to $3

Hero?