You just have to continue beating it down. His health does not go down too much initially, but after two to three time the O appears above his head (btw you have to furiously tap O continuously to complete the move), Kratos sears his chains in the hydra's mouth and pulls him down on the central pole, bringing his health down in a flash. Finish. The pole goes through the head of the hydra spraying bucketloads of hydra blood everywhere and it dies. Later on don't forget to enter inside the hydra's mouth to meet the captain and take the cabin key from him.