Worked for me, might be a glitch on your end, but just to make sure, you have to use the erotic option until she takes health damage/cums. At which point you get the text: "Nellie came! She falls down, reeling from pleasure!" That is when the context option should appear, with the following option: "Bind Nellie"
That is how I beat Nellie. However, I feel like I should probably clarify, after getting the bondage horse key, you should do the following steps:
1) Go back to the room with the tied up elf, where you will find Nellie torturing her.
2) Get Nellie's attention, by attacking, or using erotic option.
3) Run from Nellie's, and keep running away at every time she finds you, while making your way to the room with the Bondage horse. (If you haven't used the heals from the prisoners at this point you should probably use them to top off your health.)
4) Arrive in the room with the bondage horse and move around to trigger the encounter with Nellie.
5) Use the erotic option until she takes health damage/cums. At which point you get the text: "Nellie came! She falls down, reeling from pleasure!"
6) Congratulations you win. :D You had a bit of help, but you won so who gives care :) I mean maybe your pride but what has it ever done for you... :( ... imma stop now :(.